LOAN AND SECURITYAGREEMENT

 

 

by and between

 

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054

Attn:  LoanServices

(408) 496-2429

 

and

 

 

CLICK2LEARN, INC.

110 110th Avenue NE

Bellevue, WA 98004

 

TOTAL CREDIT AMOUNT: $5,000,000

 

 

Date:       As of September 4, 2001

 
| Committed Revolving Line:                                                                                                               | Term Loan:                             |
|-----------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
| Amount:  $4,000,000                                                                                                                | Amount:  $1,000,000               |
| Repayment Period:  12 months                                                                                                       | Repayment Period:  24 months      |
| Interest Rate:  Prime + 150  b.p.                                                                                                  | Interest Rate:  Prime + 150  b.p. |
| Revolving Maturity Date:  12 months from the date of the first Credit  Extension, but in no event later than November 5, 2002 | Maturity:  October 1, 2003   |
| Commitment Termination Date:   November 5, 2001                                                                               |                                   |
| Loan Fee:  $25,000, paid on  acceptance of term sheet                                                                              |

 

 

 

**The terms and information set forth on thiscover page are a part of the attached Loan and Security Agreement, dated as ofthe date first written above (this “Agreement”), entered into by and betweenSilicon Valley Bank (“Bank”) and the borrower (“Borrower”) set forth above.  The terms and conditions of this Agreementagreed to between Bank and Borrower are as follows:**

 

 

 

**LOAN AND SECURITY AGREEMENT**

 

 

**This LOAN AND SECURITY AGREEMENT** (this “Agreement”) dated as ofSeptember 4, 2001, between SILICON VALLEY BANK ("Bank") andCLICK2LEARN, INC. ("Borrower"), provides the terms on which Bank willlend to Borrower and Borrower will repay Bank. The parties agree as follows:

 

**1              ACCOUNTINGAND OTHER TERMS**

 

**               **Accounting terms not defined in thisAgreement will be construed following GAAP. Calculations and determinations must be made following GAAP.  The term "financial statements"includes the notes and schedules.  Theterms "including" and "includes" always mean"including (or includes) without limitation” in this or any LoanDocument.  Capitalized terms in thisAgreement shall have the meanings set forth in Section 13.  This Agreement shall be construed to impartupon Bank a duty to act reasonably at all times.

 

**2              LOAN AND TERMS OF PAYMENT**

 

**2.1**          **CreditExtensions. **Borrowerwill pay Bank the unpaid principal amount of all Credit Extensions and intereston the unpaid principal amount of the Credit Extensions.

 

**2.1.1       Revolving Advances.**

 

                (a)           Subject to the terms and conditions of this Agreement,Bank will make Advances under the Committed Revolving Line not exceeding at anytime outstanding (i) the lesser of (x) the Committed Revolving Line or(y) the Borrowing Base minus the outstanding principal amount of the TermLoan, minus (ii) the amount of all outstanding Letters of Credit (includingdrawn but unreimbursed Letters of Credit). Amounts borrowed under this Section may be repaid and reborrowed duringthe term of this Agreement.

 

                (b)           To obtain an Advance, Borrower must notify Bank byfacsimile or telephone by 3:00 p.m. Pacific time on the Business Day theAdvance is to be made.  Borrower mustpromptly confirm the notification by delivering to Bank the Payment/AdvanceForm attached as Exhibit B.  Bank willcredit Advances to Borrower's deposit account. Bank may make Advances under this Agreement based on instructions from aResponsible Officer or his or her designee or without instructions if theAdvances are necessary to meet Obligations which have become due.  Bank may rely on any telephone notice givenby a person whom Bank believes is a Responsible Officer or designee.  Borrower will indemnify Bank for any lossBank suffers due to that reliance.

 

                (c)           The Committed Revolving Line terminates on the RevolvingMaturity Date, when all Advances are immediately payable.

 

**2.1.2       Lettersof Credit**.  Subject to the terms and conditions of thisAgreement, Bank will issue or have issued Letters of Credit for Borrower’saccount as part of the Committed Revolving Line not exceeding (i) thelesser of (x) the Committed Revolving Line or (y) the Borrowing Baseminus the outstanding principal amount of the Term Loan, minus (ii) theoutstanding principal balance of the Advances. Each Letter of Credit will expire no later than 180 days after theRevolving Maturity Date provided Borrower’s Letter of Credit reimbursementobligation is secured by cash on terms acceptable to Bank at any time after theRevolving Maturity Date if the term of this Agreement is not extended by Bank.

 

**2.1.3       Term Loan.**

 

**               **(a)           Bankwill make a Term Loan available to Borrower subject to the terms and conditionsof this Agreement.

 

                (b)           Not later than the request for the Term Loan, Borrower will deliver to Bank an invoice orother documentation deemed reasonable by Bank reflecting the costs related tothe software and services related to such software, in each case to bepurchased with the proceeds of the Term Loan.

 

**2.2          Overadvances. **If Borrower’s Obligations under Sections 2.1.1 and2.1.2** **exceed the lesser of either (i)the Committed Revolving Line or (ii) the Borrowing Base, Borrower must immediatelypay in cash to Bank the excess.  IfBorrower’s Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed the Borrowing Base,Borrower must immediately pay in cash to Bank the excess.

 

**2.3**          **InterestRate; Payments.**

 

**               **(a)           InterestRate.

 

                                (i)            Advances under the CommittedRevolving Line accrue interest on the outstanding principal balance at a perannum rate one and one-half percent (1.50%) above the Prime Rate.

 

                                (ii)           The Term Loan accrues interest at oneand one-half percent (1.50%) above the Prime Rate.

 

                                (iii)          After an Event of Default, Obligationsaccrue interest at 5 percent above the rate formula effective immediatelybefore the Event of Default.  Theinterest rate increases or decreases when the Prime Rate changes.  Interest is computed on a 360 day year forthe actual number of days elapsed.

 

(b)           Payments.

 

                (i)            Interest on the Committed Revolving Line is payable onthe first day of each month.

 

                (ii)           Borrower will pay 24 equal installments of principal of$41,666.67 plus interest on theTerm Loan (the "Term Loan Payment"). Each Term Loan Payment is payable on the first day of each month duringthe term of the loan.  Borrower's finalTerm Loan Payment, due on October 1,2003, will include all outstanding Term Loan principal and accruedinterest.

 

                (iii)          Bank may debit any of Borrower’s deposit accounts includingAccount Number 3300312783 for principal and interest payments orany amounts Borrower owes Bank.  Bankwill notify Borrower when it debits Borrower's accounts.  These debits are not a set-off.

 

                (iv)          Payments received after 12:00 noon Pacific time areconsidered received at the opening of business on the next Business Day.  When a payment is due on a day that is not aBusiness Day, the payment is due the next Business Day and additional fees orinterest accrue.

 

**2.4**         **Fees. **Borrower will pay to Bank:

 

(a)           Committed Line of Credit Fee.  A fully earned, non–refundable feepayable monthly in arrears on the payment date for the Committed Line of Creditand equal to one quarter of one percent (.25%) per annum of the portion of theCommitted Line of Credit for the month then ended not outstanding as eitherAdvances or Letters of Credit, based on the average unused amount during suchperiod; and

 

(b)           Bank Expenses.  All Bank Expenses (including reasonableattorneys' fees and expenses ** **for documentation and negotiation of thisAgreement) incurred through and after the Closing Date when due.

 

**3              CONDITIONS OF LOANS**

 

**3.1**         **ConditionsPrecedent to Initial Credit Extension. **Bank’s obligation to make the initial Credit Extension for each Facility is subject to the conditionprecedent that it receive the agreements, documents and fees it requires forthat Facility.

 

**3.2**         **ConditionsPrecedent to all Credit Extensions. **Bank’s obligations to make each Credit Extension for any Facility, including the initial Credit Extension for that Facility, issubject to the following:

 

(a)           timely receipt of any Payment/AdvanceForm; and

 

(b)           the representations and warranties inSection 5 must be materially true on the date of the Payment/Advance Form andon the effective date of each CreditExtension and no Event of Default may have occurred and be continuing,or result from the Credit Extension.  Each CreditExtension is Borrower’s representation and warranty on that date thatthe representations and warranties in Section 5 remain true.

 

**3.3**         **Additional****Conditions Precedent to CreditExtensions Under the****CommittedRevolving Line**.  Inaddition to the requirements of Sections 3.1 and 3.2 above, Bank’s obligation to make any Credit Extension, including theinitial Credit Extension, underthe Committed Revolving Line is subject to the following:

 

(a)           Borrower shall have either(i) established its primary banking relationship with Bank, whichrelationship shall include Borrower maintaining account balances in any bank orinvestment accounts at or through Bank representing at least 95% of all accountbalances of Borrower at all financial institutions, including Bank, or(ii) provided to Bank documentation in form and substance satisfactory toBank evidencing Bank’s fully perfected security interest in, and control of,Borrower’s bank and investment accounts representing at least 95% of allaccount balances of Borrower at all financial institutions, including Bank; and

 

(b)           All conditions precedent to theinitial Credit Extension under the Committed Revolving Line other than asrequired under Section 3.2(a) shall have been met not later than the CommitmentTermination Date.

 

 

**4              CREATION OF SECURITY INTEREST**

 

**4.1**          **Grant ofSecurity Interest. **Borrowergrants Bank a continuing security interest in all presently existing and lateracquired Collateral to secure all Obligations and performance of each ofBorrower’s duties under the Loan Documents. Borrower shall also execute a separate negative pledge agreement withrespect to Intellectual Property in form and substance satisfactory toBank.  Except for Permitted Liens, anysecurity interest will be a first priority security interest in the Collateral.  During an Event of Default or an event whichwith notice or the passage of time would become an Event of Default, Bank mayplace a "hold" on any deposit account pledged as Collateral.  If the Agreement is terminated, Bank’s lienand security interest in the Collateral will continue until Borrower fullysatisfies its Obligations.

 

**5              REPRESENTATIONS AND WARRANTIES**

 

                Borrower represents and warrantsas follows:

 

**5.1**         **DueOrganization and Authorization.** Borrower and each Subsidiary is duly existing and in good standing inits state of formation and qualified and licensed to do business in, and ingood standing in, any state in which the conduct of its business or itsownership of property requires that it be qualified.

 

                The execution, delivery andperformance of the Loan Documents have been duly authorized, and do notconflict with Borrower's formations documents, nor constitute an event ofdefault under any material agreement by which Borrower is bound.  Borrower is not in default under anyagreement to which or by which it is bound in which the default could reasonably be expected to cause aMaterial Adverse Change.

 

**5.2**         **Collateraland Intellectual Property. **Borrowerhas good title to the Collateral and the Intellectual Property, free of Liensexcept Permitted Liens.  The EligibleAccounts are bona fide, existing obligations, and the service or property hasbeen performed or delivered to the account debtor or its agent for immediateshipment to and unconditional acceptance by the account debtor.  Borrower has no notice of any actual orimminent Insolvency Proceeding of any account debtor whose accounts are anEligible Account in any Borrowing Base Certificate.  All Inventory is in all material respects of good and marketablequality, free from material defects.  Borrower is the sole owner of theIntellectual Property, except for non-exclusive licenses granted to itscustomers in the ordinary course of business and except for software componentsor content licensed from third parties. Each issued Patent is valid and enforceable and no part of theIntellectual Property has been judged invalid or unenforceable, in whole or inpart, and, except as set forth on Schedule I, no claim has been made that anypart of the Intellectual Property violates the rights of any third party.

 

**5.3**         **Litigation. **Except as shown in Schedule I, there areno actions or proceedings pending or, to Borrower's knowledge, threatened by oragainst Borrower or any Subsidiary in which an adverse decision could reasonably be expected to cause aMaterial Adverse Change.

 

**5.4**         **No MaterialAdverse Change in Financial Statements.**  All consolidated financial statements forBorrower and any Subsidiary delivered to Bank fairly present in all materialrespects Borrower's consolidated financial condition and Borrower'sconsolidated results of operations. There has not been any material deterioration in Borrower’s consolidatedfinancial condition since the date of the most recent financial statementssubmitted to Bank.

 

**5.5**          **Solvency.**  The fair salable value of Borrower's assets(including goodwill minus disposition costs) exceeds the fair value of itsliabilities; Borrower is not left with unreasonably small capital after thetransactions in this Agreement; and Borrower is able to pay its debts(including trade debts) as they mature.

 

**5.6          RegulatoryCompliance.**  Borrower is not an "investmentcompany" or a company "controlled" by an "investmentcompany" under the Investment Company Act.  Borrower is not engaged as one of its important activities inextending credit for margin stock (under Regulations T and U of the FederalReserve Board of Governors).  Borrowerhas complied with the Federal Fair Labor Standards Act.  Borrower has not violated any laws,ordinances or rules, the violation of which could cause a Material AdverseChange.  None of Borrower's or anySubsidiary's properties or assets has been used by Borrower or any Subsidiaryor, to the best of Borrower's knowledge, by previous Persons, in disposing,producing, storing, treating, or transporting any hazardous substance otherthan legally.  Borrower and eachSubsidiary has timely filed all required tax returns and paid, or made adequateprovision to pay, all material taxes. Borrower and each Subsidiary has obtained all consents, approvals andauthorizations of, made all declarations or filings with, and given all noticesto, all government authorities that are necessary to continue its business ascurrently conducted.

 

**5.7**         **Subsidiaries. **Borrower does not own any stock,partnership interest or other equity securities except for PermittedInvestments.

 

**5.8**          **FullDisclosure.**  Norepresentation, warranty or other statement of Borrower in any certificate orwritten statement given to Bank contains any untrue statement of a materialfact or omits to state a material fact necessary to make the statementscontained in the certificates or statements not misleading (it being recognized by Bank that the projections andforecasts provided by Borrower in good faith and based upon reasonableassumptions are not to be viewed as facts and that actual results during theperiod or periods covered by any such projections and forecasts may differ fromthe projected or forecasted results).

 

**5.9**          **Disclosure Schedule**.  The Schedule to Loan and Security Agreementattached hereto as Schedule II and incorporated by this reference is true,correct and complete.

 

 

**6**              **AFFIRMATIVECOVENANTS**

 

                Borrower will do all of thefollowing:

 

**6.1**         **GovernmentCompliance. **Borrowerwill maintain its and all Subsidiaries' corporate existence and good standingin its jurisdiction of incorporation and maintain qualification in eachjurisdiction in which the failure to so qualify could have a material adverseeffect on Borrower’s business or operations. Borrower will comply, and have each Subsidiary comply, with all laws,ordinances and regulations to which it is subject, noncompliance with whichcould have a material adverse effect on Borrower’s business or operations orcause a Material Adverse Change.

 

**6.2**          **FinancialStatements, Reports, Certificates.**

 

**               **(a)           Borrowerwill deliver to Bank:  (i) as soon asavailable, but no later than 30days after the last day of each month, a company prepared consolidated balancesheet and income statement covering Borrower's consolidated operations duringthe period, in a form acceptable to Bank and certified by a ResponsibleOfficer; (ii) as soon as available, but no later than 120 days after the end of Borrower's fiscal year, audited consolidated financialstatements prepared under GAAP, consistently applied, together with anunqualified opinionon the financial statements from anindependent certified public accounting firm acceptable to Bank; (iii) within 5days of filing, copies of all statements, reports and notices made available toBorrower’s security holders or to any holders of Subordinated Debt and allreports on Form 10-K, 10-Q and 8–K filed with the Securities and ExchangeCommission; (iv) a prompt report of any legal actions pending or threatenedagainst Borrower or any Subsidiary that could result in damages or costs toBorrower or any Subsidiary of $100,000 or more; (v) prompt notice of anymaterial change in the composition of the Intellectual Property, including anyknowledge of an event that materially adversely affects the value of theIntellectual Property; and (vi) budgets, sales projections, operating plans orother financial information Bank requests.

 

(b)           Within 30 days after the last day of each month, Borrower will deliver toBank a Borrowing Base Certificate signed by a Responsible Officer in the formof Exhibit C with aged listings of accounts receivable and accounts payable.

 

(c)           Within 30 days after the last day of each month, Borrower will deliver toBank with the monthly financial statements a Compliance Certificate signed by aResponsible Officer in the form of Exhibit D.

 

                (d)           Bank has the right to audit Borrower's Accounts atBorrower's expense; such audits will be conducted semi-annually or as often asdeemed appropriate by Bank in its sole discretion.

 

**6.3**          **Inventory;Returns. **Borrower willkeep all Inventory in good and marketable condition, free from materialdefects.  Returns and allowances betweenBorrower and its account debtors will follow Borrower’s customary practices asthey exist at the Closing Date. Borrower must promptly notify Bank of all returns, recoveries, disputesand claims that involve more than $50,000.

 

**6.4**         **Taxes. **Borrower will make, and cause eachSubsidiary to make, timely payment of all material federal, state, and localtaxes or assessments and will deliver to Bank, on demand, appropriate certificatesattesting to the payment.

 

**6.5          Insurance. **Borrower will keep itsbusiness and the Collateral and other assets insured for risks and in amounts,as Bank requests.  Insurance policieswill be in a form, with companies, and in amounts that are satisfactory toBank.  All property policies will have alender's loss payable endorsement showing Bank as a loss payee and allliability policies will show the Bank as an additional insured and provide thatthe insurer must give Bank at least 20 days notice before canceling itspolicy.  At Bank's request, Borrowerwill deliver certified copies of policies and evidence of all premiumpayments.  Proceeds payable under anypolicy will, at Bank’s option, be payable to Bank on account of theObligations.

 

**6.6          PrimaryAccounts.**  Except as set out in Section 3.3 above,Borrower will maintain its primary banking relationship with Bank, whichrelationship shall include Borrower maintaining account balances in anyaccounts at or through Bank representing at least 95% of all account balancesof Borrower at all financial institutions, including Bank; provided, however,that notwithstanding Section 3.3 above, Borrower shall have met the bankingrelationship standard otherwise required under this Section 6.6 as to bank andinvestment accounts on or before November 5, 2001.

 

**6.7**         **FinancialCovenants.**

 

**               **Borrower will maintain as of the last day of each month**,**unless otherwise noted**:**

 

                                (a)  **Quick Ratio**.  A ratio of Quick Assets to Current Liabilities of at least 1.75 to 1.0.

 

                                (b)  **Tangible Net Worth**.  A Tangible Net Worth plus Subordinated Debtof at least fourteen million dollars ($14,000,000) plus 50% of any additionalequity and/or Subordinated Debt injected after the Closing Date.

 

                                (c)  **Profitability**.** **Borrower will have a maximum net loss in any fiscal quarterof not more than $3,250,000**.**

 

**6.8          Registration of IntellectualProperty Rights. **Borrower will file and diligently pursue theprosecution of applications to register with the United States Copyright Office(i) any software material to the business of Borrower it has, develops oracquires, within 30 days of the Closing Date, and additional software rightsdeveloped or acquired, including significant revisions, additions orimprovements to the software or revisions, additions or improvements whichsignificantly improve the functionality of the software, after the Closing Datewithin 30 days following the first  saleor licensing to any third party of the software or any product based on orcontaining any such software.  Borrowerwill promptly notify Bank upon Borrower’s filing of any application orregistration of any Intellectual Property rights with the United States Patentand Trademark Office.

 

Borrower will: (i) protect, defend and maintain the validity and enforceability of theIntellectual Property that is material to the business of the Borrower; (ii)promptly advise Bank in writing of material infringements of the IntellectualProperty that is material to the business of the Borrower; and (iii) notallow any Intellectual Property that is material to the business of theBorrower to be abandoned, forfeited or dedicated to the public without Bank’swritten consent.

 

**6.9          FurtherAssurances. **Borrower will execute any furtherinstruments and take further action as Bank requests to perfect or continueBank's security interest in the Collateral or to effect the purposes of thisAgreement, and Borrower hereby consents to Bank’s filing of any financingstatements, amendments, continuation statements or the like (with or withoutBorrower’s signature) as contemplated by this Agreement.

 

 

**7**.             **NEGATIVECOVENANTS**

 

                Borrower will not do any of the following without theBank’s written consent, which will not be unreasonably withheld:

 

**7.1          Dispositions. **Convey, sell, lease, transfer or otherwise dispose of(collectively a "Transfer"), or permit any of its Subsidiaries toTransfer, all or any part of its business or property, other than a Transfer(i) of Inventory in the ordinary course of business; (ii) of non-exclusive licensesand similar arrangements for the use of the property of Borrower or itsSubsidiaries in the ordinary course of business; or (iii) of worn–out orobsolete Equipment.

 

**7.2          Changesin Business, Ownership, Management or Business Locations. **Engage in or permit any of its Subsidiaries to engagein any business other than the businesses currently engaged in by Borrower orhave a change in its ownership ofgreater than 50% or have a material change in its management.  Borrower will not, without at least 30 daysprior written notice to Bank, relocate its principal executive office, add anynew offices or business locations or change the place of its incorporation.

 

**7.3          Mergersor Acquisitions. **Merge or consolidate, or permit any ofits Subsidiaries to merge or consolidate, with any other Person, or acquire, orpermit any of its Subsidiaries to acquire, all or substantially all of thecapital stock or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary or intoBorrower.

 

**7.4          Indebtedness. **Create, incur, assume, or be liable for anyIndebtedness, or permit any Subsidiary to do so, other than PermittedIndebtedness.

 

**7.5          Encumbrance.** Create, incur, or allow any Lien on any of its property, or assign orconvey any right to receive income, including the sale of any Accounts, orpermit any of its Subsidiaries to do so, except for Permitted Liens, or permitBank’s first priority security interest in the Collateral to change.  Create, incur, or allow any Lien on any ofits Intellectual Property, except for (i) the rights of licensors andlicensees described in this Agreement or Schedule I attached hereto and(ii) subparagraph (a) of the definition of Permitted Liens set forthhereinafter; Borrower shall execute a separate negative pledge agreement withrespect to such Intellectual Property in form and substance satisfactory toBank.

 

**7.6          Investments;Distributions.** (i) Directly or indirectly acquire orown any Person, or make any Investment in any Person, other than PermittedInvestments, or permit any of its Subsidiaries to do so; or (ii) pay anydividends or make any distribution or payment or redeem, retire or purchase anycapital stock.

 

**7.7          Transactionswith Affiliates. **Directly or indirectly enter or permitany material transaction with any Affiliate, except transactions that are inthe ordinary course of Borrower's business, on terms less favorable to Borrowerthan would be obtained in an arm's length transaction with a non-affiliatedPerson.

 

**7.8          SubordinatedDebt. **Make or permit any payment on anySubordinated Debt, except under the terms of the Subordinated Debt, or amendany provision in any document relating to the Subordinated Debt, without Bank'sprior written consent.

 

**7.9          Compliance. **Undertake as one of its important activities extendingcredit to purchase or carry margin stock, or use the proceeds of any Advancefor that purpose; fail to meet the minimum funding requirements of ERISA,permit a Reportable Event or Prohibited Transaction, as defined in ERISA, tooccur; fail to comply with the Federal Fair Labor Standards Act or violate anyother law or regulation, if the violation could reasonably be expected tohave a material adverse effect onBorrower’s business or operations or cause a Material Adverse Change, or permitany of its Subsidiaries to do so.

 

**7.10        Use of Proceeds**. Use the proceeds of the Line other than for operating capital purposesor use the proceeds of the Term Loan other than for payment of the invoices andother costs described in Section 2.1.3(b) above.  In no event will Borrower use the proceeds of either Facility tohold or carry margin stock within the meaning of under Regulations T and U ofthe Federal Reserve Board of Governors.

 

 

**8              EVENTS OF DEFAULT**

 

                Any one of the following is anEvent of Default:

 

**8.1          PaymentDefault. **Borrower fails to pay any of theObligations within 3 business days after its due date.  During the additional period the failure tocure the default is not an Event of Default (but no Credit Extensions will bemade during the cure period);

 

**8.2          CovenantDefault. **Borrower does not perform any obligationin Section 6 or violates any covenant in Article 7 or does not perform orobserve any other material term, condition or covenant in this Agreement, anyLoan Documents, or in any agreement between Borrower and Bank and as to anydefault under a term, condition or covenant that can be cured, has not curedthe default within 10 days after it occurs, or if the default cannot be curedwithin 10 days or cannot be cured after Borrower’s attempts in the 10 dayperiod, and the default may be cured within a reasonable time, then Borrowerhas an additional time, (of not more than 30 days) to attempt to cure thedefault.  During the additional period thefailure to cure the default is not an Event of Default (but no CreditExtensions will be made during the cure period);

 

**8.3          Material Adverse Change.**

 

(i) A materialimpairment in the perfection or priority of Bank’s security interest in theCollateral or in the value of such Collateral or in the value of Intellectual Property that is material to the business of theBorrower (including but not limited to creation of any Lien thereon other than a PermittedLien) other than normal depreciationwhichis not covered by adequate insurance occurs; or (ii) Bank determines, basedupon information available to it and in its reasonable judgment, that there isa reasonable likelihood that Borrower will fail to comply with one or more ofthe financial covenants in Section 6 during the next succeeding financialreporting period;

 

**8.4          Attachment.** (i) Any material portion of Borrower's assetsis attached, seized, levied on, or comes into possession of a trustee orreceiver and the attachment, seizure or levy is not removed in 10 days; (ii)Borrower is enjoined, restrained, or prevented by court order from conducting amaterial part of its business; (iii) a judgment or other claim becomes a Lienon a material portion of Borrower's assets; or (iv) a notice of lien, levy, orassessment is filed against any of Borrower's assets by any government agencyand not paid within 10 days after Borrower receives notice.  These are not Events of Default if stayed orif a bond is posted pending contest by Borrower (but no Credit Extensions willbe made during the cure period);

 

**8.5          Insolvency. **(i) Borrower becomes insolvent; (ii) Borrower beginsan Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun againstBorrower and not dismissed or stayed within 30 days (but no Credit Extensionswill be made before any Insolvency Proceeding is dismissed);

 

**8.6          Other Agreements**.   If there is a default in any agreementbetween Borrower and a third party that gives the third partythe right to accelerate any Indebtedness exceeding $100,000 or that could causea Material Adverse Change;

 

**8.7          Judgments**.  If a money judgment(s) in the aggregate ofat least $50,000 not covered by insurance is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensionswill be made before the judgment is stayed or satisfied);

 

**8.8          Misrepresentations. **If Borrower or any Person acting for Borrower makesany material misrepresentation or material misstatement now or later in anywarranty or representation in this Agreement or in any communication deliveredto Bank or to induce Bank to enter this Agreement or any Loan Document.

 

 

**9              BANK'SRIGHTS AND REMEDIES**

 

**9.1          Rightsand Remedies. **When an Event of Default occurs andcontinues Bank may, without notice or demand, do any or all of the following:

 

(a)           Declare all Obligations immediatelydue and payable (but if an Event of Default described in Section 8.5 occurs allObligations are immediately due and payable without any action by Bank);

 

(b)           Stop advancing money or extendingcredit for Borrower’s benefit under this Agreement or under any other agreementbetween Borrower and Bank;

 

(c)           Settle or adjust disputes and claimsdirectly with account debtors for amounts, on terms and in any order that Bankconsiders advisable;

 

(d)           Make any payments and do any acts itconsiders necessary or reasonable to protect its security interest in theCollateral.  Borrower will assemble theCollateral if Bank requests and make it available as Bank designates.  Bank may enter premises where the Collateralis located, take and maintain possession of any part of the Collateral, andpay, purchase, contest, or compromise any Lien which appears to be prior orsuperior to its security interest and pay all expenses incurred.  Borrower grants Bank a license to enter andoccupy any of its premises, without charge, to exercise any of Bank's rights orremedies;

 

(e)           Apply to the Obligations any (i)balances and deposits of Borrower it holds, or (ii) any amount held by Bankowing to or for the credit or the account of Borrower;

 

(f)            Ship, reclaim, recover, store,finish, maintain, repair, prepare for sale, advertise for sale, and sell theCollateral; and

 

(g)           Dispose of the Collateral accordingto the Code.

 

**9.2          Powerof Attorney. **When an Event of Default occurs andcontinues, Borrower irrevocably appoints Bank as its lawful attorney to:  (i) endorse Borrower's name on any checks orother forms of payment or security; (ii) sign Borrower's name on any invoice orbill of lading for any Account or drafts against account debtors, (iii) make,settle, and adjust all claims under Borrower's insurance policies;(iv) settle and adjust disputes and claims about the Accounts directlywith account debtors, for amounts and on terms Bank determines reasonable; and(v) transfer the Collateral into the name of Bank or a third party as the Codepermits.  Bank may exercise the power ofattorney to sign Borrower’s name on any documents necessary to perfect orcontinue the perfection of any security interest regardless of whether an Eventof Default has occurred.  Bank’s appointmentas Borrower's attorney in fact, and all of Bank's rights and powers, coupledwith an interest, are irrevocable until all Obligations have been fully repaidand performed and Bank's obligation to provide Credit Extensions terminates.

 

**9.3          AccountsCollection. **When an Event of Default occurs andcontinues, Bank may notify any Person owing Borrower money of Bank's securityinterest in the funds and verify the amount of the Account.  Borrower must collect all payments in trustfor Bank and, if requested by Bank, immediately deliver the payments to Bank inthe form received from the account debtor, with proper endorsements fordeposit.

**9.4          BankExpenses. **If Borrower fails to pay any amount orfurnish any required proof of payment to third persons Bank may make all orpart of the payment or obtain insurance policies required in Section 6.5,and take any action under the policies Bank deems prudent.  Any amounts paid by Bank are Bank Expensesand immediately due and payable, bearing interest at the then applicable rateand secured by the Collateral.  Nopayments by Bank are deemed an agreement to make similar payments in the futureor Bank’s waiver of any Event of Default.

 

**9.5          Bank'sLiability for Collateral. **If Bank complies with reasonable bankingpractices, it is not liable or responsible for: (a) the safekeeping of theCollateral; (b) any loss or damage to the Collateral; (c) any diminutionin the value of the Collateral; or (d) any act or default of any carrier,warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of theCollateral.

 

**9.6          RemediesCumulative. **Bank's rights and remedies under thisAgreement, the Loan Documents, and all other agreements are cumulative.  Bank has all rights and remedies providedunder the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election, and Bank’swaiver of any Event of Default is not a continuing waiver. Bank’s delay is nota waiver, election, or acquiescence.  Nowaiver is effective unless signed by Bank and then is only effective for thespecific instance and purpose for which it was given.

 

**9.7          DemandWaiver. **Borrower waives demand, notice of defaultor dishonor, notice of payment and nonpayment, notice of any default,nonpayment at maturity, release, compromise, settlement, extension, or renewalof accounts, documents, instruments, chattel paper, and guaranties held by Bankon which Borrower is liable.

 

 

**10           NOTICES**

 

                All notices or demands by anyparty to this Agreement or any other related agreement must be in writing andbe personally delivered or sent by an overnight delivery service, by certifiedmail, postage prepaid, return receipt requested, or by telefacsimile at theaddresses listed at the beginning of this Agreement.  A Party may change its notice address by giving the other Partywritten notice.

 

 

**11           CHOICEOF LAW , VENUE AND JURY TRIAL WAIVER**

 

                California law governs the LoanDocuments without regard to principles of conflicts of law.  Borrower and Bank each submit to the exclusivejurisdiction of the State and Federal courts in Santa Clara County, California.

 

**BORROWER AND BANK EACH WAIVE THEIRRIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASEDUPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS AMATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITSCOUNSEL.**

 

 

**12           GENERAL PROVISIONS**

 

**12.1        Successorsand Assigns. **This Agreement binds and is for thebenefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement orany rights or Obligations under it without Bank's prior written consent whichmay be granted or withheld in Bank's discretion.  Bank has the right, without the consent of or notice to Borrower,to sell, transfer, negotiate, or grant participation in all or any part of, orany interest in, Bank's obligations, rights and benefits under this Agreement,the Loan Documents or any related agreement.

 

**12.2        Indemnification. **Borrower will indemnify, defend and hold harmless Bankand its officers, employees and agents against:  (a) all obligations, demands, claims, and liabilities asserted byany other party in connection with the transactions contemplated by the LoanDocuments; and (b) all losses or Bank Expenses incurred, or paid by Bank from,following, or consequential to transactions between Bank and Borrower(including reasonable attorneys’ fees and expenses), except for losses causedby Bank's gross negligence or willful misconduct.

 

**12.3        Timeof Essence.**  Time is of the essence for the performanceof all Obligations in this Agreement.

 

**12.4        Severabilityof Provision.**  Each provision of this Agreement isseverable from every other provision in determining the enforceability of anyprovision.

 

**12.5        Amendmentsin Writing, Integration.**  Allamendments to this Agreement must be in writing signed by both Bank andBorrower.  This Agreement and the LoanDocuments represent the entire agreement about this subject matter, andsupersedes prior or contemporaneous negotiations or agreements.  All prior or contemporaneous agreements,understandings, representations, warranties, and negotiations between theparties about the subject matter of this Agreement and the Loan Documents mergeinto this Agreement and the Loan Documents.

 

**12.6        Counterparts. **This Agreement may be executed in any number ofcounterparts and by different parties on separate counterparts, each of which,when executed and delivered, are an original, and all taken together, are oneAgreement.

 

**12.7        Survival. **All covenants, representations and warranties made inthis Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank willsurvive until all statutes of limitations for actions that may be broughtagainst Bank have run.

 

**12.8**        **Confidentiality.**  In handling any confidential information,Bank will exercise the same degree of care that it exercises for its ownproprietary information, but disclosure of information may be made: (i) toBank’s subsidiaries or affiliates in connection with their present orprospective business relations with Borrower; (ii) to prospective transfereesor purchasers of any interest in the Loans; (iii) as required by law,regulation, subpoena, or other order, (iv) as required in connection withBank’s examination or audit; and (v) as Bank considers appropriate inexercising remedies under this Agreement. Confidential information does not include information that either: (a)is in the public domain or in Bank’s possession when disclosed to Bank, orbecomes part of the public domain after disclosure to Bank; or (b) is disclosedto Bank by a third party, if Bank does not know that the third party isprohibited from disclosing the information.

 

**12.9        Attorneys’Fees, Costs and Expenses.**  In any actionor proceeding between Borrower and Bank arising out of the Loan Documents, theprevailing party will be entitled to recover its reasonable attorneys’ fees andother costs and expenses incurred, in addition to any other relief to which itmay be entitled, whether or not a lawsuit is filed.

 

 

**13           DEFINITIONS**

 

**13.1        Definitions.**

 

                "**Accounts**" are allexisting and later arising accounts, contract rights, and other obligationsowed Borrower in connection with its sale or lease of goods (includinglicensing software and other technology) or provision of services, all creditinsurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower's Booksrelating to any of the foregoing.

 

                "**Advance**" or "**Advances**" is a loanadvance (or advances) under the Committed Revolving Line.

 

                "**Affiliate**" of a Person is a Personthat owns or controls directly or indirectly the Person, any Person thatcontrols or is controlled by or is under common control with the Person, andeach of that Person's senior executive officers, directors, partners and, forany Person that is a limited liability company, that Person’s managers andmembers.

 

                "**Bank Expenses**" are all audit fees andexpenses and reasonable costs or expenses (including reasonable attorneys' feesand expenses) for preparing, negotiating, administering, defending andenforcing the Loan Documents (including appeals or Insolvency Proceedings).

 

                "**Borrower's Books**" are all Borrower'sbooks and records including ledgers, records regarding Borrower's assets orliabilities, the Collateral, business operations or financial condition and allcomputer programs or discs or any equipment containing the information.

 

                "**Borrowing Base**" is 75% of Eligible Accounts, asdetermined by Bank from Borrower’s most recent Borrowing Base Certificate.

 

                "**Business Day**" is any day that is not aSaturday, Sunday or a day on which the Bank is closed.

 

                "**Closing Date**" is the date of thisAgreement.

 

                "**Code**" is the California UniformCommercial Code.

 

                "**Collateral**" is the property describedon Exhibit A.

 

                “**Commitment Termination Date**” is November 5,2001.

 

**               **"**Committed Revolving Line**"is a Credit Extension of up to $4,000,000.

 

                "**Contingent Obligation**" is, for anyPerson, any direct or indirect liability, contingent or not, of that Person for(i) any indebtedness, lease, dividend, letter of credit or other obligation ofanother such as an obligation directly or indirectly guaranteed, endorsed, co–made,discounted or sold with recourse by that Person, or for which that Person isdirectly or indirectly liable; (ii) any obligations for undrawn letters ofcredit for the account of that Person; and (iii) all obligations from anyinterest rate, currency or commodity swap agreement, interest rate cap orcollar agreement, or other agreement or arrangement designated to protect aPerson against fluctuation in interest rates, currency exchange rates orcommodity prices;  but "ContingentObligation" does not include endorsements in the ordinary course ofbusiness.  The amount of a ContingentObligation is the stated or determined amount of the primary obligation forwhich the Contingent Obligation is made or, if not determinable, the maximumreasonably anticipated liability for it determined by the Person in good faith;but the amount may not exceed the maximum of the obligations under theguarantee or other support arrangement.

 

                "**Copyrights**" are all copyright rights,applications or registrations and like protections in each work or authorshipor derivative work, whether published or not (whether or not it is a tradesecret) now or later existing, created, acquired or held.

 

                "**Credit Extension**" is each Advance,Letter of Credit, Term Loan, or any other extension of credit by Bank forBorrower’s benefit.

 

                "**Current Assets**" are amounts that underGAAP should be included on that date as current assets on Borrower’sconsolidated balance sheet.

 

                "**Current Liabilities**" are the aggregateamount of Borrower’s Total Liabilities which mature within one (1) year.

 

                "**Eligible Accounts**" areAccounts in the ordinary course of Borrower's business that meet all Borrower'srepresentations and warranties in Section 5.2; but Bank may changeeligibility standards by giving Borrower 30 days prior written notice.  Unless Bank agrees otherwise in writing,Eligible Accounts will not include:

 

(a)           Accounts that the account debtor hasnot paid within 90 days of invoice date;

 

(b)           Accounts for an account debtor, 50%or more of whose Accounts have not been paid within 90 days of invoice date;

 

(c)           Credit balances over 90 days frominvoice date;

 

(d)           Accounts for an account debtor,including Affiliates, whose total obligations to Borrower exceed 25% of allAccounts, for the amounts that exceed that percentage, unless Bank approves inwriting;

 

(e)           Accounts for which the account debtordoes not have its principal place of business in the United States except forEligible Foreign Accounts;

 

(f)            Accounts for which the accountdebtor is a federal, state or local government entity or any department,agency, or instrumentality except for (i) Accounts of the United States ifthe payee has assigned its payment rights to Bank and the assignment has beenacknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727) or(ii) Accounts of such other federal, state or local government entity orany department, agency, or instrumentality if the payee has assigned its paymentrights to Bank and the assignment has been acknowledged under the relevantstatute or regulation.  Notwithstandingthe foregoing, Bank shall have no obligation to pursue such consents; provided,however, that Accounts for which the account debtor is a federal, state orlocal government entity or any department, agency, or instrumentality which inthe aggregate do not exceed $500,000 at any one time included in the BorrowingBase shall be deemed Eligible Accounts even if such Accounts do not otherwisemeet the acknowledgment requirements by the account debtor of this subpart (f);

 

(g)           Accounts for which Borrower owes theaccount debtor, but only up to the amount owed (sometimes called"contra" accounts, accounts payable, customer deposits or creditaccounts);

 

(h)           Accountsfor demonstration or promotional equipment, or in which goods are consigned,sales guaranteed, sale or return, sale on approval, bill and hold, or otherterms if account debtor’s payment may be conditional;

 

(i)            Accounts for which the account debtoris Borrower’s Affiliate, officer, employee, or agent;

 

(j)            Accounts in which the account debtordisputes liability or makes any claim and Bank believes there may be a basisfor dispute (but only up to the disputed or claimed amount), or if the AccountDebtor is subject to an Insolvency Proceeding, or becomes insolvent, or goesout of business;

 

(k)           Accounts for which Bank reasonablydetermines  collection to be doubtful.

 

"**EligibleForeign Accounts**" are Accounts for which the account debtordoes not have its principal place of business in the United States butare:  (1) covered by creditinsurance satisfactory to Bank, less any deductible; or (2) supported byletter(s) of credit acceptable to Bank; or (3) that Bank approves inwriting.

 

                "**Equipment**" is all present and futuremachinery, equipment, tenant improvements, furniture, fixtures, vehicles,tools, parts and attachments in which Borrower has any interest.

 

                "**ERISA**" is the Employment RetirementIncome Security Act of 1974, and its regulations.

 

                **“Event of Default”**is defined in Section 8 of this Agreement.

 

                “**Facility**”is the Committed Revolving Line and/or the Term Loan as the context requires.

 

                "**GAAP**" is generally accepted accountingprinciples.

 

                "**Indebtedness**” is (a) indebtedness forborrowed money or the deferred price of property or services, such asreimbursement and other obligations for surety bonds and letters of credit, (b)obligations evidenced by notes, bonds, debentures or similar instruments, (c)capital lease obligations and (d) Contingent Obligations.

 

                "**Insolvency Proceeding**" is anyproceeding by or against any Person under the United States Bankruptcy Code, orany other bankruptcy or insolvency law, including assignments for the benefitof creditors, compositions, extensions generally with its creditors, orproceedings seeking reorganization, arrangement, or other relief.

 

                "**Intellectual****Property**"is:

 

(a)           Copyrights, Trademarks, Patents, andMask Works including amendments, renewals, extensions, and all licenses orother rights to use and all license fees and royalties from the use;

 

(b)           Any trade secrets and anyIntellectual Property Rights in computer software and computer softwareproducts now or later existing, created, acquired or held;

 

(c)           All design rights which may be availableto Borrower now or later created, acquired or held;

 

(d)           Any claims for damages (past, presentor future) for infringement of any of the rights above, with the right, but notthe obligation, to sue and collect damages for use or infringement of the intellectualproperty rights above;

 

(e)           All proceeds and products of theforegoing, including all insurance, indemnity or warranty payments.

 

                "**Inventory**" is present and futureinventory in which Borrower has any interest, including merchandise, raw materials,parts, supplies, packing and shipping materials, work in process and finishedproducts intended for sale or lease or to be furnished under a contract ofservice, of every kind and description now or later owned by or in the custodyor possession, actual or constructive, of Borrower, including inventorytemporarily out of its custody or possession or in transit and includingreturns on any accounts or other proceeds (including insurance proceeds) fromthe sale or disposition of any of the foregoing and any documents of title.

 

                "**Investment**" is any beneficialownership of (including stock, partnership interest or other securities) anyPerson, or any loan, advance or capital contribution to any Person.

 

                **“Letter of Credit”**is a stand-by or commercial letter of credit issued by Bank for the account ofBorrower.

 

                "**Lien**" is a mortgage, lien, deed oftrust, charge, pledge, security interest or other encumbrance.

 

"**LoanDocuments**" are, collectively, this Agreement, any note, ornotes or guaranties executed by Borrower or any guarantor, and any otherpresent or future agreement between Borrower and/or for the benefit of Bank inconnection with this Agreement, all as amended, extended or restated.

 

“**Loan Margin**”is 150 basis points.

 

**                "MaskWorks"**are all mask works or similar rights available forthe protection of semiconductor chips, now owned or later acquired.

 

**“Material Adverse Change”** is definedin Section 8.3.

 

**                "MaturityDate"**is the Revolving Maturity Date or the maturity dateof the Term Loan, as applicable.

 

                **"Obligations"** are debts,principal, interest, Bank Expenses and other amounts Borrower owes Bank now orlater, including letters of credit and foreign exchange contracts, if any, andincluding interest accruing after Insolvency Proceedings begin and debts,liabilities, or obligations of Borrower assigned to Bank.

 

**                "Patents"**are patents, patent applicationsand like protections, including improvements, divisions, continuations,renewals, reissues, extensions and continuations–in–part of thesame.

 

                "**Permitted Indebtedness**"is:

 

(a)           Borrower’s indebtedness to Bank underthis Agreement or the Loan Documents;

 

(b)           Indebtedness existing on the ClosingDate and shown on Schedule I;

 

(c)           Subordinated Debt;

 

(d)           Indebtedness to trade creditorsincurred in the ordinary course of business; and

 

Indebtednesssecured by Permitted Liens.

 

                "**Permitted Investments**” are:

 

(a)           Investments shown on Schedule I andexisting on the Closing Date; and

 

(b)           (i) marketable direct obligations issued or unconditionally guaranteed bythe United States or its agency or any State maturing within 1 year from itsacquisition, (ii) commercial paper maturing no more than 1 year after itscreation and having the highest rating from either Standard & Poor'sCorporation or Moody's Investors Service, Inc., (iii) Bank’s certificates ofdeposit issued maturing no more than 1 year after issue, and (iv) anyInvestments permitted by Borrower’s investment policy, as amended from time totime, provided that such investment policy (and any such amendment thereto) hasbeen approved by Bank; and

 

(c)           Investmentsconsisting of the endorsement of negotiable instruments for deposit orcollection or similar transactions in the ordinary course of Borrower.

 

"**Permitted Liens**" are:

 

(a)           Liens existing on the Closing Dateand shown on Schedule I or arising under this Agreement or other LoanDocuments;

 

(b)           Liens for taxes, fees, assessments orother government charges or levies, either not delinquent or being contested ingood faith and for which Borrower maintains adequate reserves on its Books, ifthey have no priority over any of Bank's security interests;

 

(c)           Purchase money Liens (i) on Equipmentacquired or held by Borrower or its Subsidiaries incurred for financing theacquisition of the Equipment, or (ii) existing on equipment when acquired,if the Lien is confined to the property and improvements and theproceeds of the Equipment;

 

(d)           Leases or subleases and licenses orsublicenses granted by Borrower in the ordinary course of its business, if theleases, subleases, licenses and sublicenses permit (or do not prohibit)granting Bank a security interest;

 

(e)           Liens incurred in the extension,renewal or refinancing of the indebtedness secured by Liens described in (a)through (c), but any extension, renewal or replacement Lien must belimited to the property encumbered by the existing Lien and the principalamount of the indebtedness may not increase.

 

"**Person**"is any individual, sole proprietorship, partnership, limited liability company,joint venture, company, trust, unincorporated organization, association,corporation, institution, public benefit corporation, firm, joint stockcompany, estate, entity or government agency.

 

                "**Prime Rate**" is Bank’s most recentlyannounced "prime rate," even if it is not Bank’s lowest rate.

 

                "**Quick Assets**" is, on any date, theBorrower’s consolidated, unrestricted cash, cash equivalents, net billedaccounts receivable and investments with maturities of less than 12 monthsdetermined according to GAAP.

 

                "**Responsible****Officer**" is each of theChief Executive Officer, the President, the Chief Financial Officer and theController of Borrower.

 

                **"Revolving Maturity Date"**is twelve (12) months from the date ofthe first Credit Extension under the Committed Revolving Line, but in no eventlater than November 5, 2002.

 

                "**Schedule**" is any attached schedule ofexceptions or disclosures.

 

                "**Subordinated Debt**" is debt incurred byBorrower subordinated to Borrower’s indebtedness owed to Bank and which is reflected in a written agreement ina manner and form acceptable to Bank and approved by Bank in writing.

 

                "**Subsidiary**" is for any Person, jointventure, or any other business entity of which more than 50% of the votingstock or other equity interests is owned or controlled, directly or indirectly,by the Person or one or more Affiliates of the Person.

 

                "**Tangible Net Worth**" is, on any date,the consolidated total assets of Borrower and its Subsidiaries minus,(i) any amounts attributable to (a) goodwill, (b) intangible items such as unamortizeddebt discount and expense, Patents, trade and service marks and names,Copyrights and research and development expenses except prepaid expenses, and(c) reserves not already deducted from assets, and (ii) TotalLiabilities .

 

**                "TermLoan"**a loan equal to $1,000,000.

 

                "**Total****Liabilities**" is on any day,obligations that should, under GAAP, be classified as liabilities on Borrower’sconsolidated balance sheet, including all Indebtedness, and current portionSubordinated Debt allowed to be paid, but excluding all other SubordinatedDebt.

 

                **"Trademarks"**are trademark and service mark rights,registered or not, applications to register and registrations and likeprotections, and the entire goodwill of the business of Borrower connected withthe foregoing.

 

 
|  BORROWER:     |
|---------------------|
|                |
| CLICK2LEARN, INC.   |
|                |
|                |
| By:                 |   |
|                |
| Title:              |   |
|                |
|                |
| SILICON VALLEY BANK |
|                |
|                |
| By:                 |   |
|                |
| Title:              |   |
|                |
|                     |  |  |

EXHIBIT A

 

 

                The Collateral consists of all of Borrower’s right,title and interest in and to all personal property including but not limited tothe following, but excluding Borrower’s intellectual property:

 

                All goods and equipment now owned or hereafteracquired, including, without limitation, all machinery, fixtures, vehicles(including motor vehicles and trailers), and any interest in any of theforegoing, and all attachments, accessories, accessions, replacements,substitutions, additions, and improvements to any of the foregoing, whereverlocated and all certificates of title;

 

                All inventory, now owned or hereafter acquired,including, without limitation, all merchandise, raw materials, parts, supplies,packing and shipping materials, work in process and finished products includingsuch inventory as is temporarily out of Borrower's custody or possession or intransit and including any returns upon any accounts or other proceeds,including insurance proceeds, resulting from the sale or disposition of any ofthe foregoing and any documents of title representing any of the above;

 

                All contract rights and general intangibles(otherthan Intellectual Property) now owned or hereafter acquired, including, withoutlimitation, goodwill, , leases, license agreements, franchise agreements,blueprints, drawings, purchase orders, customer lists, route lists,infringements, claims,  computer discs,computer tapes, literature, reports, catalogs, income tax refunds, payments of insurance and rights to payment of anykind;

 

                All now existing and hereafter arising accounts,contract rights, royalties, license rights and all other forms of obligationsowing to Borrower arising out of the sale or lease of goods, the licensing oftechnology or the rendering of services by Borrower, whether or not earned byperformance, and any and all credit insurance, guaranties, and other securitytherefor, as well as all merchandise returned to or reclaimed by Borrower;

 

                All documents, cash, deposit accounts, securities,securities entitlements, securities accounts, investment property, financialassets, letters of credit, letter-of-credit rights, certificates of deposit,instruments, chattel paper (tangible or electronic), and supporting obligationsnow owned or hereafter acquired and Borrower's Books relating to the foregoing;and

 

All Borrower'sBooks relating to the foregoing and any and all claims, rights and interests inany of the above and all substitutions for, additions and accessions to andproceeds thereof.

 

                All proceeds ofany intellectual property of any nature (including but not limited to patents,trademarks and copyrights), cash or noncash, including but not limited towhatever is acquired upon the sale, lease, license, exchange, or otherdisposition of such property; whatever is collected on, or distributed onaccount of, such property; rights arising out of such property; claims arisingout of the loss, nonconformity, or interference with the use of, defects orinfringement of rights in, or damage to, such property; or insurance payable byreason of the loss or nonconformity of, defects or infringement of rights in,or damage to, such property.

 

                All proceeds ofany of the foregoing, cash or noncash, including but not limited to whatever isacquired upon the sale, lease, license, exchange, or other disposition ofcollateral; whatever is collected on, or distributed on account of, collateral;rights arising out of collateral; claims arising out of the loss,nonconformity, or interference with the use of, defects or infringement ofrights in, or damage to, the collateral; or insurance payable by reason of theloss or nonconformity of, defects or infringement of rights in, or damage to,the collateral.

 

                Borrower hasagreed not to create, incur or allow liens on its property except in limitedcircumstances. NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN, BORROWER HASAGREED NOT TO CREATE, INCUR, OR ALLOW ANY LIENS ON ANY OF ITS INTELLECTUALPROPERTY RIGHTS, INCLUDING BUT NOT LIMITED TO COPYRIGHT RIGHTS, COPYRIGHTAPPLICATIONS, COPYRIGHT REGISTRATIONS AND LIKE PROTECTIONS IN EACH WORK OFAUTHORSHIP AND DERIVATIVE WORK THEREOF, WHETHER PUBLISHED OR UNPUBLISHED, NOWOWNED OR HEREAFTER ACQUIRED; ALLMASK WORKS OR SIMILAR RIGHTS AVAILABLE FOR THE PROTECTION OF SEMICONDUCTORCHIPS, NOW OWNED OR HEREAFTER ACQUIRED; ANY AND ALL TRADESECRETS, AND ANY AND ALL INTELLECTUAL PROPERTY RIGHTS IN COMPUTER SOFTWARE ANDCOMPUTER SOFTWARE PRODUCTS NOW OR HEREAFTER EXISTING, CREATED, ACQUIRED ORHELD; ANY AND ALL DESIGN RIGHTS WHICH MAY BE AVAILABLE TO BORROWER NOW ORHEREAFTER EXISTING, CREATED, ACQUIRED OR HELD; ALL PATENTS, PATENT APPLICATIONSAND LIKE PROTECTIONS INCLUDING, WITHOUT LIMITATION, IMPROVEMENTS, DIVISIONS,CONTINUATIONS, RENEWALS, REISSUES, EXTENSIONS AND CONTINUATIONS-IN-PART OF THESAME, INCLUDING WITHOUT LIMITATION THE PATENTS AND PATENT APPLICATIONS; ANYTRADEMARK AND SERVICEMARK RIGHTS, WHETHER REGISTERED OR NOT, APPLICATIONS TOREGISTER AND REGISTRATIONS OF THE SAME AND LIKE PROTECTIONS, AND THE ENTIREGOODWILL OF THE BUSINESS OF BORROWER CONNECTED WITH AND SYMBOLIZED BY SUCHTRADEMARKS, INCLUDING WITHOUT LIMITATION; ANY AND ALL CLAIMS FOR DAMAGES BY WAYOF PAST, PRESENT AND FUTURE INFRINGEMENTS OF ANY OF THE RIGHTS INCLUDED ABOVE,WITH THE RIGHT, BUT NOT THE OBLIGATION, TO SUE FOR AND COLLECT SUCH DAMAGES FORSAID USE OR INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS IDENTIFIED ABOVE;ALL LICENSES OR OTHER RIGHTS TO USE ANY OF THE COPYRIGHTS, PATENTS, TRADEMARKSOR MASK WORKS, AND ALL LICENSE FEES AND ROYALTIES ARISING FROM SUCH USE TO THEEXTENT PERMITTED BY SUCH LICENSE OR RIGHTS; AND ALL AMENDMENTS, EXTENSIONS,RENEWALS AND EXTENSIONS OF ANY OF THE COPYRIGHTS, TRADEMARKS,  PATENTS, OR MASK WORKS; ANDALL PROCEEDS ANDPRODUCTS OF THE FOREGOING, INCLUDING WITHOUT LIMITATION ALL PAYMENTS UNDERINSURANCE OR ANY INDEMNITY OR WARRANTY PAYABLE IN RESPECT OF ANY OF THEFOREGOING.

 

                Borrower and Bankare parties to that certain Negative Pledge Agreement, whereby Borrower, inconnection with Bank’s loan or loans to Borrower, has agreed, among otherthings, not to sell, transfer, assign, mortgage, pledge, lease, grant asecurity interest in or encumber any of its Intellectual Property withoutBank’s prior written consent.

 

BANK USE ONLY

Although Borrower believes that it does not infringe this patent andthat the patent is invalid, and although Borrower intends to defend this actionvigorously, the results of litigation can never be predicted withcertainty.  An adverse outcome in thislitigation could have a material adverse effect on Borrower’s business,operating results and financial condition. Moreover, the costs of defending the action, regardless of outcome,could be time-consuming, distract management personnel and have a negativeeffect on Borrower’s business.

 

 

**7.5          Rightsof Licensors and/or Licensees with Respect to Intellectual Property:**

 

Licensees have rights to use software granted inthe ordinary course of business.  Asrequired under the terms of the Loan and Security Agreement, none of thelicenses are exclusive licenses.

 

Licensors own all rights in learning content resoldby Borrower pursuant to reseller agreements with content publishers.

 

Certain components of Borrowers software productsare licensed from third parties as follows:

 

Third Party Codein ToolBook

 
| **Product**                          |   | **Company Name**  |   | **Technology Type**                           |
|--------------------------------------|--------|-------------------|--------|-----------------------------------------------|
| Instructor,  Assistant               |   | Inso/Imagemark    |   | Graphics  Filters                             |
| Instructor,  Assistant, TB Publisher |   | Unisys            |   | Exporting .GIF  images                        |
| Instructor,  Assistant               |   | Installshield     |   | Use of  InstallShield in autopackager feature |
| Instructor,  Assistant               |   | Microsoft         |   | Microsoft  Agent                              |
| Instructor,  Assistant               |   | Soft-Art          |   | Spelling  checker                             |
| Instructor,  Assistant               |   | LittleMan  Studio |   | clip art                                      |
| Instructor,  Assistant               |   | Adobe             |   | Adobe Acrobat                                 |
| Instructor,  Assistant               |   | Intel             |   | Intel Indeo  Codec                            |
| Instructor,  Assistant               |   | Sun               |   | Sun Java  Virtual Machine                     |
| Instructor,  Assistant               |   | PhotoDisc         |   | ClipPix                                       |

 

Third Party Code in Aspen/Ingenium

 
| **Product**    |   | **Company Name**          |   | **Technology Type**                                      |
|----------------|--------|---------------------------|--------|----------------------------------------------------------|
| Aspen/Ingenium |   | Sun                       |   | Java Runtime                                             |
| Aspen/Ingenium |   | Persits                   |   | ISP Upload                                               |
| Aspen/Ingenium |   | Green Tree                |   | Text input  fields                                       |
| Aspen/Ingenium |   | Microsoft                 |   | Tabbed Dialog  Control                                   |
| Aspen/Ingenium |   | ProtoView                 |   | List  navigation control                                 |
| Aspen/Ingenium |   | DBI                       |   | Interface  items such as date boxes, calendar views, etc |
| Aspen/Ingenium |   | FarPoint                  |   | Spread  grid-based interface                             |
| Aspen/Ingenium |   | Seagate                   |   | Crystal  Reports reporting engine                        |
| Aspen/Ingenium |   | Intuitive  Data Solutions |   | IDS  Mail—interface to email systems                |
| Aspen/Ingenium |   | Xceed                     |   | XceedZip                                                 |

 

 

**“Permitted Indebtedness” Existing on Closing Date:**

 

Equipment Leases with Banc Boston Leasing asdescribed in UCC filings filed in Washington and Massachusetts which arelimited to specific equipment and were in effect prior to the date of thisAgreement.

 

 

**Investments:**

 

·     Click2learnLimited — UK subsidiary, Europe headquarters.

·     Click2learnCanada Limited — Development office located in Halifax.

·     IntelliPrepTechnologies, Incorporated — No employees or operations.

·     CommunicationStrategies, Inc. — Fluctuating number of employees, but on average, around20.  Company provides temporary workersto other companies.  Borrower owns 100%of this entity.

·     AimtechCorporation — No employees or operations.

·     MelioraSystems, Inc. — No employees or operations.

·     AsymetrixSARL — No employees or operations.

·     AsymetrixGmbH — No employees or operations.

·     Click2learnJapan KK — Japan joint venture with Softbank, Borrower owns approximately 35%of this entity.

·     Marketablesecurities in cash management account, but only to the extent permitted underthe Loan and Security Agreement.

 

**SCHEDULE II**

**TO LOAN AND SECURITY AGREEMENT – ADDITIONAL DISCLOSURES**

 

The exact correct corporate name of Borrower is(attach a copy of the formation documents, e.g., articles, partnershipagreement): Click2learn, Inc.

 

Borrower’s State of formation:  Delaware

 

Borrower has operated under only the followingother names (if none, so state): click2learn.com, inc., Asymetrix Learning Systems, Inc., AsymetrixCorporation

 

All other address at which the Borrower doesbusiness are as follows (attach additional sheets if necessary and include allwarehouse addresses):

 

Bellevue

110 – 110thAvenue NE

Bellevue, WA 98004

 

Needham

One Multimedia Plaza

255 Highland Avenue

Needham, MA 02494

 

Rochester

2165Brighton-Henrietta

Townline Rd.

Rochester, NY 14623

 

New York

400 Madison Ave

Ste 17A

New York, NY 10017

 

Atlanta

3715 NorthsideParkway, NW

100 Northcreek, Ste.270

Atlanta, GA 30327

 

Fort Worth

1300 Summit, Ste. 516

Fort Worth, TX 76102

Warehouses:

 

Piece parts storage and manufacturing is done at:

 

QMedia Services

4101Industry Drive East

SuiteD

Fife,WA. 98424

800-451-5742

 

Packagedgoods are stored and fulfilled from:

 

InteractInc.

15000Woodinville-Redmond Road

SuiteB-800

Woodinville,WA. 98072

425-424-7500

 

Europeanpackaged goods are stored and fulfilled from:

 

SykesLtd.

NetherRoad

Galashiels,Scotland

TD13HE United Kingdom

44-1896-7548661

 

----

1Title to goods at this location remains in Borroweruntil the goods are shipped.

 

 

Borrower has deposit accounts and/or investmentaccounts located only at the following institutions:

 
| ***Account with Bank***                              |                                                                                                                                                                                     | ***Account Number*** |   |
|------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|--------|
| ***Needham Mass Office***                            |                                                                                                                                                                                     |
| *Bank of America*                                    | *68789619*                                                                                                                                                                               |
|                                                 |                                                                                                                                                                                     |
| ***London***                                         |                                                                                                                                                                                     |
| *Bank of America-Resident and Non-resident Accounts* |
|                                                 | *601915744012,601916336016-DEM*                                                                                                                                                          |
|                                                 | *601018652013,601019024013-FRF*                                                                                                                                                          |
|                                                 | *600833004011,600838565018-GBP*                                                                                                                                                          |
|                                                 | *601019024021,600833004029,60108652021-USD*                                                                                                                                              |
|                                                 |                                                                                                                                                                                     |
| ***Bellevue  Office/Corporate***                     | ***[All of the Accounts  Listed Below Will Be Replaced By Silicon Valley Bank Accounts Before The  Closing Date or Not Later Than November 5, 2001 in Accordance With §6.6]*** |
| *Bank of America-Checking*                           | *78965316*                                                                                                                                                                               |
| *Bank of America-STAM*                               | *72-40-400-0010473*                                                                                                                                                                      |
| *Paine Weber*                                        | *CP 12060-G2*                                                                                                                                                                            |
| *Wells Fargo*                                        | *4375664539-General*                                                                                                                                                                     |
|                                                 | *4759621329/540463098-Controlled Disbursements*                                                                                                                                          |
|                                                 | *4496829375-ZBA for payroll*                                                                                                                                                             |
|                                                 | *12397477-Secured Investment*                                                                                                                                                            |
| *Citi-bank AG - sponsored by Wells Fargo*            | *Acct No.  4113496016 Swift  CITIDEFF*                                                                                                                                              |
| *Lloyds Bank PLC, London*                            | *Acct No. 01081706  Swift  L07DGB2L*                                                                                                                                                |
|                                                      |                                                                                                                                                                                          |                      |        |  |

 

 

Liens existing on the Closing Date and disclosed to and accepted by Bankin writing:

 

As set forth on Schedule I

 

Investments existing on the Closing Date anddisclosed to and accepted by Bank in writing:

 

As set forth on Schedule I

 

 

Subordinated Debt:

 

Indebtedness on the Closing Date and disclosed to and consented to byBank in writing:

 

None

 

 

The following is a list of the Borrower’scopyrights (including copyrights of software) which are registered with theUnited States Copyright Office.  (Pleaseinclude name of the copyright and registration number and attach a copy of theregistration):

 

No currently shipping products are registered.

 

 

The following is a list of all software which theBorrower sells, distributes or licenses to others, which is notregistered with the United States Copyright Office, other than third partysoftware for which Borrower is a reseller. (Please include versions which arenot  registered):

 

Ingenium Version 6.1;

ToolBook II Assistant Version 8.1;

ToolBook II Instructor Version 8.1.

Rapid e-Learning Development System (ReDS) Version1.5.

 

(These are the currently shipping versions, onolder versions, some are registered and some are not).

 

 

The following is a list of all of the Borrower’spatents which are registered with the United States Patent Office. (Pleaseinclude name of the patent and registration number and attach a copy of theregistration.):

 

US 5,530,856 VERIFYING MULTIMEDIA LINKING FOR A MULTIMEDIAPRESENTATION;

US 5,500,936 MULTI-MEDIA SLIDE PRESENTATION SYSTEM WITH AMOVEABLE, TRACKED POPUP MENU WITH BUTTON AND TITLE BARS.

 

 

The following is a list of all of the Borrower’spatents which are pending with the United States Patent Office.  (Please include name of the patent and acopy of the application.):

 

PCT 81117-4 COMPUTER BASED INTERACTIVE LEARNING METHOD AND SYSTEM

 

 

The following is a list of all of the Borrower’sregistered trademarks material to its business.  (Please include name of the trademark and a copy of theregistration.):

 

TOOLBOOK US REG. 1,581,290

TOOLBOOK II US REG 2,216,830

TOOLBOOK II INSTRUCTOR US REG 2,145,733

 

CLICK2LEARN is not registered—application wasrejected as descriptive.  Borrower isconsidering re-filing in light of business changes.

 

INGENIUM is not registered due to change in name toASPEN.

 

ASPEN trademark application has been filed with US PTO

 

 

Borrower is not subject to litigation which would have a materialadverse effect on the Borrower’s financial condition, except the following(attach additional comments, if needed):

 

As set forth on Schedule I

 

 

Tax ID Number: 91-1276003.

 

Organizational Number, if any: N/A

 

 

 

 

**FORM OF LANDLORD’S CONSENT**

 

 

RECORDING REQUESTED BY

AND WHEN RECORDED RETURN TO:

SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA  95054

Attn:  Loan Services

 

**CONSENT TO REMOVAL OF PERSONAL PROPERTY**

 

KNOW ALL PERSONS BY THESE PRESENTS:

 

**(a)           The undersigned has an interest as owner and landlord inthe following described real property (the “Real Property”):  SEE ATTACHMENT 1 ATTACHED HERETO FOR FULLLEGAL** DESCRIPTION, commonly known as ____________________________.

**(b)           Click2learn, Inc., (“Borrower”), has entered into or willenter into a Loan and Security Agreement with Silicon Valley Bank (“Bank”)dated as of September 4, 2001 (as amended and supplemented from time totime, the “Loan Agree­ment”).  As a conditionto entering into the Loan Agreement, require that the undersigned consent tothe removal by Bank of the equipment, inventory and other assets covered by theLoan Agreement,**whether now owned or hereafter acquired, together with all substitutions,renewals or replacements of and additions, improvements, and accessions to anyand all of the foregoing, and all proceeds from sales, renewals, releases orother dispositions thereof (hereinafter collectively called “Borrower’sAssets”) from the Real Property.

**NOW, THEREFORE, theundersigned consents to the placing of the Borrower’s Assets on the RealProperty, and agrees with Bank as follows:**

**1.             The undersigned waives and releaseseach and every right which undersigned now has, under applicable law or by virtueof the lease for the Real Property now in effect, to levy or distrain upon forrent, in arrears, in advance or both, or to claim or assert title to theBorrower’s Assets that is already on said Real Property, or may hereafter bedelivered or installed thereon.**

**2.             The Borrower’s Assets shall beconsidered to be personal property and shall not be considered part of the RealProperty regardless of whether or by what means it is or may become attached oraffixed to the Real Property.**

**3.             The undersigned will permit Bank,or its agent or representative, to enter upon the Real Property for the purposeof exercising any right they may have under the terms of the Loan Agreement orotherwise, including, without limitation, the right to remove the Equipment; provided,however, that if Bank, in removing the Borrower’s Assets damage anyimprovements of the undersigned on the Real Property, Bank will, at itsexpense, cause same to be repaired.**

**4.             This agreement shall be bindingupon the heirs, successors and assigns of the undersigned and shall inure tothe benefit of each Bank and its respective successors and assigns.**

**INWITNESS WHEREOF, the undersigned has executed this instrument at__________,Washington day of__________, 2001.**

** **
|       |   |
|------------|--------|
|       |   |
| **By:**    |   |   |
|       |   |
| **Title:** |   |   |
|            |        |  |  |

 

 

 

**ATTACHMENT 1**

 

 

                The Real Property referenced inthe CONSENT TO REMOVAL OF PERSONALPROPERTY to which this Attachment 1 is attached is more fully describedas follows: